The U.S. Economy Hasn't Defaulted Yet Despite Being In The Red For 100 Years

The week after Congress averted one crisis - a possible government shutdown - lawmakers appear on the cusp of navigating past another one.

Photo Insert: The red, white and blue has been perpetually in the red for the past 100 years.

The two Senate leaders, Chuck Schumer, D-N.Y., and Mitch McConnell, R-Ky., have agreed on a deal in which the debt ceiling would be raised next week. And they’re now making sure they have the votes to pass it. That timing is important, PBSNewshour correspondent Lisa Desjardins reported.

Treasury Secretary Janet Yellen has warned lawmakers that the current debt limit means after Dec. 15, “there are scenarios in which the Treasury would be left with insufficient remaining resources” to finance government operations. The good news is Senate leaders seem on track toward avoiding a debt crisis.

What does the debt limit do, specifically? Let’s start there. Because this simple name is misleading. The “debt limit” does not limit the amount of debt the US owes. That would be too easy. Instead, it is a cap on how much the government can borrow.

Billions in spending -- orders for planes, new hires in government, among other expenses -- still stand and accumulate. But once the limit is reached, the US can no longer borrow more to pay for those bills.

The US has operated off of red ink for most of the past 100 years. Government spending has increased, both in nominal terms and relative to GDP, under the past three presidents. And then soared in these years of the pandemic. This past fiscal year, we borrowed $2,800,000,000,000 -- that’s $2.8 trillion -- to provide COVID-19 relief and keep the government afloat.

America depends on borrowing, whether there is a pandemic or not. And it has done so much of it for so long (while maintaining a stable, robust economy) that the world depends on us to borrow. US Treasurys operate as a key foundation of global financial markets and trade.

The US hasn’t defaulted yet, Desjardins said and cited a report by the Congressional Research Service (CRS) to buttress her claim.

In “Clearing the Air on the Debt Limit,” CRS said “In three episodes in the late 1970s, lapses in a temporary debt limit increase left the amount of outstanding federal debt above its limit. Those lapses resulted in no payment delays, and thus were not defaults in the ordinary sense of that term.”

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